We’d Have an Energy Boom … If the Government Got Out of the Way

Commentary By

Nicolas Loris, an economist, focuses on energy, environmental and regulatory issues as the Herbert and Joyce Morgan fellow at The Heritage Foundation. Read his research.

There’s been something of an energy boom taking place in the U.S. over the past few years, and it’s given the American economy a real boost. Now we just need the federal government to get out of the way and open opportunities to freely trade energy, and those benefits will grow substantially.

U.S. coal exports over the past six years are way up, in large part because of the administration’s effort to limit consumption domestically. Domestic production of oil and natural gas is rising fast as well, with producers seeking to export their products to foreign markets.

Expanded exports could provide a huge boon to the American economy, providing jobs and increasing economic growth broadly. Providing other countries with cheaper energy helps in two ways. It lowers the prices of products that the U.S. imports because the businesses could make the products more cheaply. And it promotes economic development in those countries, enabling them to import more American goods.

Critics often say energy exports will hurt us all by raising energy prices. This is a particular concern with exporting crude oil affecting the price Americans pay at the pump.

However, several studies project that lifting the ban would likely decrease gas prices in the U.S. and globally by creating a more efficient distribution system for processing oil. A recent study from the economic consulting firm IHS finds that removing the ban would lower gasoline prices by 8 cents per gallon, saving motorists $265 billion over 15 years.

Put simply, free trade is a fundamental component in creating prosperity and promoting human well-being. When markets are open to more producers and consumers, competition provides people with more choices and better products at lower prices.

Opening markets to both imports and exports fosters innovation as companies face more competition and meet challenges to retain or expand their market share. The result is innovative ideas, higher-quality products at competitive prices and an improving standard of living.

President Obama recognizes as much. When speaking about benefits of trade a few years back in Berlin, he said, “Trade has been a cornerstone of our growth and global development. But we will not be able to sustain this growth if it favors the few, and not the many.”

Yet that’s exactly what our policies restricting energy exports are doing. Because America has a longstanding ban on crude oil exports and an onerous process in approving liquefied natural gas (LNG) facilities, the government is limiting opportunities for the many to protect the few special interests who stand to benefit from keeping the energy locked for domestic use.

In a recent economic report, the Dallas Federal Reserve Bank explained how the crude oil export ban may help a few refiners but end up hurting us all:

“Consumers also may be negatively affected if the export ban remains in effect. Given that the prices of gasoline and diesel are determined in a world market, consumers see few, if any, of the benefits that flow to U.S. refiners. To the extent that the ban discourages drilling, this limits the potential supply of oil available to be processed into gasoline and diesel, placing upward pressure on retail fuel prices.”

The benefits to freely trading energy aren’t just economic. Providing more energy choices to both producers and consumers worldwide will bolster U.S. national security by increasing global energy supplies. It will also reduce the ability of any one nation to use its control of energy resources to threaten U.S. interests.

The recent crisis in Crimea between Ukraine and Russia demonstrates how liberalizing global energy markets could be an effective geopolitical tool. Much of Russia’s power in the region derives from its control of energy supplies and distribution systems.

Because approving, engineering, permitting and building LNG facilities takes several years, lifting export restrictions might not directly influence the Ukraine crisis in the near term. But it would send an important signal to Russia and the rest of the world that any country that derives power from controlling energy interests will have less power in the future.

Opening markets would provide a diversity of suppliers and greater energy supplies for the global market. This would likely reduce prices and certainly offer more choice to countries such as Ukraine in the near future. Ultimately, providing that choice would diminish Russian power.

The case for energy free trade is clear. Now we just need Congress and the administration to remove the barriers that are preventing Americans from seizing these opportunities.

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